Linking the EU emissions trading scheme: economic implications of allowance allocation and global carbon constraints |
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Authors: | N Anger B Brouns J Onigkeit |
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Institution: | (1) Centre for European Economic Research (ZEW), P.O. Box 10 34 43, 68034 Mannheim, Germany;(2) Fraktion DIE LINKE. im Bundestag, Platz der Republik 1, 11011 Berlin, Germany;(3) Center for Environmental Systems Research (CESR), University of Kassel, Kurt-Wolters-Str.3, 34109 Kassel, Germany |
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Abstract: | We investigate the role of domestic allowance allocation and global emissions constraints for the carbon-market impacts of
linking the EU Emissions Trading Scheme (ETS) internationally. Employing a quantitative simulation model of the global carbon
market, we find that the economic benefits from connecting the European ETS to emerging non-EU schemes strongly depend on
the regional allowance allocation of the linking participants: In a world of moderate carbon constraints, an economically
efficient regional allowance allocation induces a much stronger fall in total compliance costs than a sub-optimal (i.e. too
high) domestic allocation of emissions permits. However, a more efficient (i.e. stricter) allocation shifts abatement efforts
and compliance costs to energy-intensive industries which are covered by the domestic ETS. We further find that committing
to ambitious global emissions reduction targets (compatible with stabilizing CO2 concentrations at 450 ppm) induces much stronger regional abatement efforts and substantially higher compliance costs for
the abating regions. In such an ambitious climate policy regime, an efficient domestic allocation of allowances is even more
important from an economic perspective: Here, linking emissions trading schemes diminishes the associated compliance costs
on the largest scale.
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Keywords: | EU ETS Emissions trading Allowance allocation Climate policy Linking of domestic emissions trading schemes |
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